In Grancy Property (Pty) Ltd v Manala and Others 2013, which was recently decided in the Supreme Court of Appeal ("SCA"), the court came to the assistance of a minority shareholder (Grancy) which sought the appointment of two independent directors to investigate the affairs of the company of which Grancy was a minority member.
The Applicant (Seena Marena Investments – “SMI”) brought their application relying on the provisions of Section 163 of the Companies Act 71 of 2008 ("the Act"). This section provides inter alia relief for minority shareholders of a company who claim that the actions of the majority members, through the directors, is oppressive or unfairly prejudicial to, or in disregard of, their interests. The section provides that the court, if satisfied that a case has been made, is allowed to make any interim or final order it considers fit.
In the case in question the Applicants complained that the majority shareholders and directors of SMI had misappropriated large sums of company money in the form of director's remuneration and fees, as well as other unauthorised payments to themselves. The Respondent's directors and shareholders denied that they had acted improperly or illegally and in the court of first instance (Western Cape High Court), they succeeded in their defence. However, on appeal, the SCA found that the allegations of improper conduct had not been satisfactorily rebutted (a bare denial of the allegations being held to be insufficient), and the court accordingly decided the case on the basis of the factual version advanced by the Applicants. The court held that on that version the requirements of Section 163(1) of the Act had been satisfied. The court, after reviewing extensive legal authority, held that:
"There is much to be said for the proposition that Section 163 must be construed in a manner that will advance the remedy that it provides rather than limit it".
The court further stated that, in determining whether the conduct complained of is oppressive, unfairly prejudicial or unfairly disregards the interests of the minority, it is not the motive for the conduct complained of that the court must look at but the conduct itself and the effect which that conduct has on the other members of the company.
Section 163 of the Act, as endorsed by this judgment, offers considerable protection to minority shareholders if they have genuine reason to believe that their rights are being overreached by majority shareholders or directors. However, not all or any conduct of the majority might have legally actionable, prejudicial effect on minority members. Conduct must not only be prejudicial but unfairly so. Situations where conduct will not only be prejudicial but unfairly so would include lack of probity or good faith in dealing in the affairs of the company.